The document discusses the substantial growth of digital payments in India in 2022, particularly highlighting the Unified Payments Interface (UPI) as a key driver, with a 216% increase in transaction volume compared to 2019. UPI's convenience and real-time transaction capabilities have made it more appealing than traditional methods, leading to projections of it making up 73% of digital transactions by FY26, including international expansions. Additionally, the recent RBI decision to integrate RuPay credit cards with UPI aims to enhance digital payment access and generate revenue streams for payment companies.

2. Phenomenal growth may be the exact term to describe the
increased volume of digital payments in India in 2022. If you
inspect the March data of the current year, it shows that this
payment ecosystem grew by 216% compared to the same period
in 2019. The Unified Payments Interface (UPI), an initiative of the
National Payments Corporation of India (NPCI) has been a
critical driver of cashless transactions since its launch in 2016.
The idea behind introducing UPI was to enable fast, secure, and
seamless digital payments with the Immediate Payment Service
(IMPS) infrastructure.
The immense popularity of this system is evident from the fact
that UPI transactions exceeded USD 110 billion in January 2022.
NPCI has launched several innovative payment systems for
developing the digital payment space and tied up with foreign
companies like Japan Credit Bureau, China Union Pay, Discover
Financial Services, etc. The international coordination would
provide support by payment acknowledgment through RuPay
cards.

3. Starting with IMPS and NFS in 2010, there have been RuPay
cards, NACH, Aadhaar Payments Bridge System (APBS),
Aadhaar-enabled Payments System (AePS), NETC, BBPS, UPI,
and the USSD based *99#.
What makes UPI the game changer in digital payments?
Convenience
For using debit or credit cards online, you need to enter several
details related to the card holder’s name, card number, CVV, and
expiry dates. For UPI, you just key in the UPI ID, login, and
complete the payment after putting in the PIN.
If you are using net banking, you must first add the beneficiary
to your bank account. You require the beneficiary’s name, bank
account number, branch address, and IFSC code. The process
takes time to get activated, and then you can make the payment.
To make a UPI payment, you can transfer funds to a peer account
even if they do not have UPI access.

4. Besides, there are advantages over other existing payment
methods. For instance, UPI allows you to make payments
directly from your bank account without any third-party wallet
or a card. Thus, making it much more convenient and secure
than using a debit or credit card for online payments.
Moreover, UPI transactions happen in real-time. There is no
waiting period for the funds to be credited or debited from the
user’s account. This feature makes UPI an ideal choice for digital
payments.
Simple
UPI is also very simple to use. You just need a smartphone with
an active internet connection. You can then download a UPI-
enabled app from your bank’s website or the Google Play Store.
After installing the app, simply link your bank account and start
making payments.
Versatile
You can also use UPI to request money from others or to send

5. UPI is particularly beneficial as a non-cash payment instrument
when it involves person-to-person (P2P) fund transfers and
transactions related to small-value person-to-merchant (P2M)
payments.
Interoperable
With interoperability technology between different payment
systems and UPI, and more people using digital payments, the
costs of transactions are expected to decrease further.
India’s most prominent technology firms like TCS, Infosys,
Wipro, etc., and fintech companies in various fields like
insurance, payment, agriculture, microloans, crowdfunding, and
wealth management are some of the major factors behind the
growth of UPI. The role of an open Application Programming
Interface (API) is also worth mentioning.
How does UPI’s rise affect the Indian economy?
All the above factors have pegged the volume of UPI transactions
at approximately 9 times that of debit and credit card
transactions in FY22. But this is just the initial phase. UPI is
forecasted to grow manifold and comprise around 73% of the
total volume of digital transactions by the financial year 2026.

6. UPI transactions beyond borders
The tie-up between NIPL (NPCI International Payments Limited)
and others like Liquid Group – Singapore, Mashreq Bank – UAE,
Lyra Network – France, and PayXpert – UK, are significant steps
toward enabling QR-based UPI payments in countries across the
globe. Nepal and Bhutan became the first countries to adopt UPI.
RBI’s latest move entails linking RuPay credit cards with UPI.
The decision to implement such a change has come at the perfect
hour since credit card transactions are rising. A Goldman Sachs
report states that the volume of transactions was around $130 Bn
in FY22. The forecast is that it may reach $285 Bn by FY26 while
the UPI volume growth in August 2022 was more than Rs. 6500
Mn with 346 banks going live on the platform.
An important point is the MDR (merchant discount rate) on
transactions by RuPay credit cards. Like other credit cards, the
rate will likely be around 2%, as specified by the National
Payments Corporation of India (NPCI).

7. What can be the impact of this MDR on BFSI?
Payment companies like PayU, Razorpay, Billdesk, etc., would be
able to acquire more transactions as credit cards would be an
additional payment instrument on the UPI platform.
The proposed MDR of 2% (1.5% for the issuing bank and 0.5% for
the payment company) on credit cards for payments through the
Unified Payments Interface (UPI), would generate a revenue
stream for the payment companies.
Currently, the MDR on UPI merchant transactions is zero, which
is a deterrent for the payment companies as there is no direct
income available for them on UPI transactions. This MDR would
help the payment companies to manage and maintain the
infrastructure for UPI volume growth.
For smaller merchants, providing a subsidy for MDR will mean
the payment companies would lose their revenue percentage by
an amount equivalent to the subsidy amount. In that scenario,
the Government can incentivize the payment companies to
maintain their payment infrastructure (technology, etc.) and
operating costs.

8. Conclusion
With the RBI’s decision to allow credit cards for payments
through UPI, the central bank is enabling access to digital
payments for those who do not have a debit card or a bank
account. It would help to expand the reach of digital payments to
a wide demographic besides bringing in higher revenue for the
payment companies. If you are looking for a game changer in the
digital payments space, UPI it is.
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